What is Bitconnect and why have we decided to distance ourselves from it?

a year ago | Jon Nielsen

What is Bitconnect and why have we decided to distance ourselves from it?

Bitconnect is one of the more controversial projects within the cryptocurrency ecosystem and despite briefly breaking into the CoinCodex top ten it continues to divide opinion. Bitconnect emerged on the scene in January with BCC then worth just $0.16; Bitconnect currently holds a market cap of around $586,547,055 with each one of its 2,138,092 BCC coins trading at a price of just under $275. As a result of its recent success, the project has attracted a large amount of attention and it’s time to take a closer look at this particular cryptocurrency.

The Idea

Bitconnect markets itself as open source, community cryptocurrency and displays this description on its homepage "Bitconnect is an open source, peer-to-peer, community driven decentralized cryptocurrency that allow people to store and invest their wealth in a non-government controlled currency, and even earn a substantial interest on investment. This means anyone holding BitConnect Coin in their wallet will receive interest on their balance in return for helping maintain security of the network".

The site also promises to allow individuals to gain financial freedom with a secure and practical alternative to centralized banking and claims to facilitate financial independence. Bitconnect offers a number of different ways for their "investors" to interact with their organization.

The Business Model

Staking:

Bitconnect allows users who have purchased BBC to accrue interest and promises returns of up to 120% per year through PoS minting. Users who hold coins in a Bitconnect-QT wallet will receive interest on their balance.

Trading:

BCC holders can also trade the coin and try to profit by selling them at a higher price and buying them back at a lower price. Investors are prompted to use Bitcoin to purchase BCC from the BCC exchange.

Mining:

BCC can be mined with CPU/GPU equipment and miners can choose to work via a BCC Solo Mining Proof of Work system or through the BCC Pool Mining system.

Lending:

Bitconnect also offers the option to invest BCC via a special lending platform and this involves using the Bitconnect trading bot and volatility software. Lenders are promised to receive daily profit based on their investment option with the following options available.

Bitconnect appears to be a passive income solution that generates “easy money” for BCC holders and the promise of high returns has proven to be alluring for early investors. Upon examination, the Bitconnect system throws up a number of red flags.

Red Flags

The Bitconnect system requires investors to purchase BCC by depositing Bitcoin on the BCC exchange, this exchange accounts for over 95% of all BCC trading, resulting in the price of BCC being susceptible to manipulation.

Investors are also promised enormous returns with figures ranging from 100% to 500% depending on extra bonuses; this is all achieved with a coin that experienced 24 hour trade volumes of just $9m up until October.

The project also relies on a dubious referral system; and investors who buy BCC and lend it to earn interest can increase their gains by referring Bitconnect to others. A pyramid system of referral bonuses means that investors reach the highest tiers of interest when BCC holders that were referrals also go on to bring in new referrals.

The project is also shrouded in mystery as the team and trading bot system are unknown. In addition, the entire project is massively overvalued with just 25% of coins in circulation currently generating its current market cap. With all its coins in circulation Bitconnect would achieve a market cap of over $6bn, similar in size to Ripple’s XRP which has a market cap of around $8bn.

Conclusion

After taking the time to further analyse the Bitconnect project it is still unclear who is behind the project, exactly how it works, or if BCC has any actual use. Bitconnect also employs a number of dubious methods in order to operate and promote its business. The business model outlined by the company is economically unsustainable with the current level of returns unable to be validated by any legally known investment system. The Bitconnect project also generates a large amount of negative feedback from within the cryptocurrency community with accusations that the project is actually a "scam" or "Ponzi scheme" being actively discussed. As a result, we have taken the decision to distance ourselves from this project, remove it from the top 100 by market cap list and place a warning on Bitconnect page.